Bitcoin is designed to be “decentralized” in every way he could manage, including a “consensus” protocol for approving changes to the protocol and code. Most Nakamotoan cryptocurrencies have some permutation on that theme, though some are “one-token-one-vote” rather than “one-cycle-one-vote” systems.
These governance processes have proved to be a major question mark for Nakamotoan technology. They have proved slow and awkward, and often deliver non-democratic if not outright fraudulent results. Worse, they have inhibited innovation and just plain bug fixing, because voting power is controlled by economic interests which can block necessary changes for their own short term profit.
(I have observed in the past that this “consensus” approach—which is not necessarily what most people mean by the word “consensus”—were modelled after the management of open source software projects. FLOSS software is usually small scale and economically unimportant. And, by the way, the vast majority of FLOSS projects are abandoned. But cryptocurrencies gather millions of users around the world, and involve large financial stakes. So the governance used by hobbyists is not necessarily the best match, when millions ride on the decision.)
Anyway.
This month saw yet another demonstration Nakamotoan, or at least school of Nakamoto, governance.
Uniswap is an Ethereum based system for swapping digital tokens. I don’t really understand what it is for, but as far as I can tell, it’s basically a robotic market, mimicking legal currency and commodity exchanges. Whatever it is for (and I suspect that grey and dark markets are the primary use case), it seems to be successful: they claim to have $2 billion worth of tokens in their slush funds liquidity pools.
The thing that interested me is that they have a governance protocol based on a one-token-one-vote rule, plus minimum support requirements. So, anyone with 1% or more of the tokens can propose a change, and the change must garner 40 million votes, which is near unanimity.
(In general, the reason for such rules it to prevent changes that “rewrite history”, changing already confirmed transactions.)
This month Uniswap held its first vote, and it was, as Sebastian Sinclair reports, an “Ironic Failure” [1]. Evidently realizing that the original rules make it almost impossible to pass any changes, one of the participants proposed new, lower limits.
The proposal garnered 98% of the vote, short of the 99% needed. As Sinclair notes, the result of the vote demonstrated the reason for the proposal.
In the short run, this result hardly matters. But this bodes ill for the future. Systems based on Ethereum “smart contracts” have experienced grievous bugs and massive losses. Ethereum itself had to fork, with the old, buggy “classic” still limping along becoming less and less viable with every day. Something like this could happen to Uniswap, and it would be impossible to fix it. Say goodbye to your $2billion.
Congratulations to Uniswap for demonstrating the inherent untrustworthiness of “trustless” systems, and the non-consensual nature of Nakamotoan “consensus” protocols.
- Sebastian Sinclair (2020) Uniswap’s First Governance Vote Ends in Ironic Failure. Coindesk, https://www.coindesk.com/uniswaps-first-governance-vote-ends-in-ironic-failure
Cryptocurrency Thursday
Robert McGrath's Blog 